College Board Offers Proposals for Simplifying Student Financial Aid

By Beckie Supiano

Prospective students from low-income backgrounds need information on financial aid at a younger age, and an easier way to get access to that money when they need it for college. That’s the perspective guiding a set of proposals for simplifying the financial-aid system that was released by the College Board on Wednesday.

The proposals appear in a new paper, “Back to Basics: Simplifying the Financial Aid Process to Increase Access & Success,” written for the second phase of the Bill & Melinda Gates Foundation’s Reimagining Aid Design and Delivery project. The College Board is part of the project’s consortium working on simplification and transparency.

In its paper, the College Board offers proposals in five areas: simplifying the aid-application process; making federal-aid eligibility clearer; using older tax data; providing needed data to colleges and states; and providing early information to families.

The application process for federal financial aid has become somewhat easier lately, the paper points out, now that students and parents can use the IRS data-retrieval tool to populate the Free Application for Federal Student Aid, or Fafsa. Still, it argues, the process could be simpler.

To make it so, the paper recommends basing federal aid only on financial data that can be gathered from the IRS. It suggests that students whose families aren’t required to file federal tax forms automatically qualify for a maximum Pell Grant. It suggests using "prior-prior year" tax data, and letting students who’ve experienced a change in circumstances (like the death of a parent) appeal their eligibility determination.

Simpler Tests for Eligibility

The College Board suggests that, for most students, eligibility for a Pell Grant should be determined from two data elements—adjusted gross income and family size. That simplified calculation would allow students to get a good idea of their Pell Grant eligibility long before applying for aid.

In more-complex situations, like when families have negative adjusted gross income or file certain tax schedules, the government could collect additional information, the paper says.

The paper does not deal directly with calculating eligibility for subsidized federal loans. That’s because the College Board wants to remain open to several future directions the program might take, said Kathleen Little, the organization’s senior adviser for student-aid policy and the report’s main author.

In a previous project, a group gathered by the College Board suggested replacing the current subsidized-loan system, in which a government subsidy covers the interest on the loans while students are enrolled, with a system that shifts the subsidy to borrowers in repayment. In that case, there would be no need to have a mechanism for determining eligibility.

Another idea would be to make subsidized loans available only to Pell Grant recipients, in which case no further process would be needed. And, finally, if subsidized loans were maintained in something like their current form, extra data collected for states and colleges could be used to award them.

The paper also reiterates a recommendation from the College Board’s Rethinking Pell Grants study group that the program should change so that only students under a certain income level would qualify for a grant. The size of the maximum award would be raised by the increase in the Consumer Price Index plus one percentage point each year.

Potential Problems

Streamlining the aid-application process and the way aid eligibility is determined could be a big improvement for students and families slogging through the Fafsa form, or turned off from college by the prospect of filling it out.

But efforts to simplify the process are often met with concerns that basing aid on fewer data points could be problematic for states and colleges that use the federal form to award their own aid. For that reason, the paper recommends sharing more data from families’ prior-prior year tax returns with them and providing a new needs-analysis formula that requires only that information.

The paper also suggests that information on academic preparation, the benefits of college, sticker and net prices of public colleges, Pell Grant eligibility, and other financial-aid data be sent to families annually once their children are of school age.

“It’s really important for low-income students to understand early in their preparation years what their eligibility for federal student aid might be,” Ms. Little said. That knowledge could encourage students to work hard in their classes and guide them in where to apply to college, she added.

The paper mentions a recommendation, offered in a paper from the Hamilton Project, that aid be calculated just once, at the outset of college, off the three most recent years’ tax data. “Our consortium really likes the idea of applying only once,” Ms. Little said.

But the new paper doesn’t repeat that recommendation because the authors weren’t sure the Internal Revenue Service was prepared to provide data from additional years. And a system where students apply for aid only once using one year of data could be too easy to game, they worried. But the paper does suggest the government conduct a pilot study to see what would happen if families applied for aid only once.

The idea is a good one, Ms. Little said, and “we don’t want it to be forgotten.”